Near Term Market Direction

[Steve]

Hi Everyone !

My thoughts about the next 6 months of Market Activity are beginning to change. I did believe that we were headed into the typical Aug - Oct slow period and that the market would drop and pick up sometime around Nov. At that point we would be back in an upward trend. For the immediate time frame between now and Oct. most of my money is in cash. I have a few shares of Rydex Venture 100 Fund (RYVNX), a fund that is leveraged 2 to 1 against the market. (The fund goes up when the market goes down).

I am now beginning to feel we might be entering a bear market and may not have the upward trend in November and we may continue downward. If that is the case I am concerned about the one long position I have in SIRI (Sirius). I am contemplating selling off some SIRI to protect my modest profit. However, I am somewhat leary of selling. As with anyones luck as soon as I sell SIRI will take off. My thinking was SIRI was going to take of in November with the end of year uptrend and getting near to Stern's arrival. With my new thinking of a possible Bear Market I am more unsure of what SIRI would do.

Interested in hearing from you as per your thoughts on this.... Have a Great Weekend All.... Steve

[DJF]

Hi Steve,

In the short term I think we are looking at further downside. When traders return from their vacation next week they will likely take a look at the market and think it overvalued. We won't know what they think until we see some heavy volume days - that is when we will see what they are doing.

Whatever chance the secondary indicators were making towards a short term bottom on Thursday looks to have been blown out of the water on Friday. Given that I suspect we will see further accleration to the downside next week.

However, I am not of the opinion we are in for a full scale return towards a bear market - indeed I was looking at some of these indicators back in 1998 and it may be we never entered a 'true' bear market but instead we have one very big sideways pattern in development. But this is something developing over years (not months) and could last another 15 years and it is not something which will be resolved over the coming days or months.

I digress. I still hold for a decent (tradable) bounce - possibly in November, maybe a little sooner in the larger caps. As for SIRI, keep an eye on the 50-day MA (a measure of support). Recent action has the looks of a bear flag and the Big Money haven't allowed this step over $7.00 - I would sell as close as possible to $7.00 as you can get and perhaps look to buy the stock back at $7.10 if there is a solid close over $7.00 on heavy volume. The MACD trigger line and OBV look to favor further development of an upside move but always let price be your lead.

DD as always,
DJF